We're Boosting Our Price Target for Elevance Health
Here's why.
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* We are raising our Elevance Health price target to $560 from $550 following the company’s beat and raise March quarter.
Shares of Elevance Health ELV hit a new 52-week high following the company’s March-quarter results that bested expectations and raised its full-year outlook above market forecasts. Revenue for the quarter rose to $42.27 billion, a tad lower than the $42.49 billion consensus, but EPS for the quarter clocked in at $10.64 per share, nicely ahead of the $10.52 consensus.
The driver of that upside relative to expectations was the company’s ability to clamp down on its benefit expense ratio, which fell to 85.6%, ahead of the 86.1% consensus and 20 basis points lower compared to the year-ago quarter. It was also helped by the company continuing to buy back shares, which it did to the tune of $566 million for 1.1 million shares during the March quarter.
As Elevance reiterated its long-term compound annual growth target of 12%, management lifted its 2024 EPS outlook to “above $37.20" compared to its prior guidance of $37.15 and the market consensus of $37.10. With $3.6 billion left under its current share repurchase authorization, we could see the company continue to shrink its share count, potentially helping its EPS comparisons. The larger driver of 2024 EPS will be further improvement on its cost structure, and that is leading us to boost our price target to $560 from $550. Given the distance to that revised level, we will keep our Two rating intact.
Exiting the March quarter, Elevance had 46.2 million members, down 4% year over year and compared to 47.0 million at the end of 2023. That includes the continued decline in Medicare Advantage given select market exits. Those membership losses were partially offset by growth in the company's commercial Employer Group fee-based, Affordable Care Act, and BlueCard membership. While some may focus on the net membership decline, we favor disciplined companies that focus on driving profit improvement especially if it means exiting markets that weigh down its margins.
At the time of publication, TheStreet Pro Portfolio was long ELV.
